Global real estate equities held up relatively well in a generally challenging period for stocks, reflected in flat to negative returns for major indexes. Markets broadly fell through the middle of the month, amid plummeting oil prices and lackluster economic data from the U.S., China and Europe. These trends reversed, however, sending equity and debt markets higher to mostly recover earlier losses. Meanwhile, investors continued to strive to find policy clarity in China, where officials sent mixed signals as to how they would address a slowing economy and fragile capital and currency markets.

U.S. REITs (–0.5% total return1) had a modestly negative overall return, although performance varied by property type. Hotels (7.6% total return2) were the best performers, rallying from depressed levels, even as room revenues continued to disappoint. Host Hotels was a standout, aided by an earnings report that exceeded expectations. Free-standing retail REITs also advanced, favored for their relatively stable and above-average dividend yields in a period of low and declining bond yields.

Self storage companies, by far the strongest performer over the past year, declined 3.6% overall. Despite some apparent profit taking, the backdrop for the sector remained strong, characterized by rising demand, limited new supply, and ample opportunities for expansion. Office REITs fell 2.6% after declining in January, reflecting concerns about employment trends in central business districts, in particular with regard to financial services tenants.

Regional mall companies (1.8%) had a modest gain, although the shopping center sector (–2.3%) was hindered by a 12% decline in Brixmor Property Group. The company's CEO, CFO and CAO were dismissed after an internal audit revealed accounting irregularities that had smoothed quarterly operating income. The shares rallied from a 20% decline after it was clarified that the manipulations did not affect formal accounting disclosures and that operating results at the company, including cash flow figures, were unaffected.

Canada (2.8%) had a gain and saw its currency appreciate as oil prices moved back above $30 per barrel. The plunge in oil over the past 18 months has weighed on the country's resources-dependent economy. Office landlord Dream REIT rose more than 20% as the company announced measures to lower its leverage, including selling lower-quality assets and cutting its dividend.

Europe Saw Elevated Volatility

In addition to global factors, political concerns in the U.K. and Spain contributed to market volatility in Europe. An "in or out" voter referendum for the U.K.'s so-called Brexit is now scheduled for June 23, with uncertain implications for trade and employment. In Spain, parties continued to strive to build a governing coalition post December's elections, with the possibility that socialist politicians could wield more influence.

European stocks also faced pressure mid-month from speculation that Deutsche Bank might miss payments on its contingent convertible bonds, a recently introduced form of regulatory capital. This spurred worries about the health of Europe's wider banking system, although those fears seemed excessive. The issue appeared to be an isolated case not reflective of Deutsche Bank's overall health, and Europe's banks in general saw improved performance late in the month from a credit perspective.

In terms of country performance, the U.K. (–6.4% total return) struggled. Macro factors again outweighed property fundamentals, which have remained strong as reflected in steady rental growth and low cap rates (high property values). Brexit concerns appeared to especially weigh on large London office companies, which typically had sizable declines in the month.

On the continent, Germany (1.3%) advanced and outperformed France (–3.0%) and the Netherlands (–1.6%), with the market's residential sector favored as a safe haven. In news, German apartment landlord Vonovia ended its unsolicited attempt to acquire rival Deutsche Wohnen, after shareholders of the latter rejected terms of the €14 billion ($15.7 billion) deal. Both stocks rose on the news.